Practitioners have identified scalability challenges when applying the Canadian Auditing Standards (CASs) to audits of entities whose nature and circumstances are less complex – particularly, Canada’s many small and micro entities.
Based on concerns raised by some interested and affected parties, the public interest considerations include the following:
- Practitioners may not consistently apply the CASs in audits of less complex entities (LCE), which may affect the performance of high-quality audits.
- Practitioners may spend unnecessary time and effort performing procedures that may be ineffective or create redundant documentation, which may affect the performance of cost-effective audits. If conducting audits is not cost effective (i.e., the cost of complying with the standard’s requirements exceeds expected benefits), it may become a barrier in engaging auditors.
Similar issues in LCE audits are experienced by practitioners worldwide. Consequently, the International Auditing and Assurance Standards Board (IAASB) has issued:
Over the past few years, the AASB’s main activities on this initiative included:
a. conducting outreach activities on the challenges practitioners face when auditing LCEs;
b. listening and contributing to international deliberations on this topic, including attending the 2017 and 2019 IAASB Small- and Medium-sized Practices/Small to Medium Entities Working Conferences in Paris, France;
c. monitoring the IAASB’s progress on this initiative, including providing feedback on the IAASB’s meeting agenda papers;
d. seeking input from a range of Canadian interested and affected parties on the IAASB’s 2019 Discussion Paper and submitting a response letter shaped by that feedback;
e. establishing the Audits of LCE Advisory Group to support the AASB in reviewing and responding to materials issued by the IAASB; and
f. providing input on CPA Canada’s implementation guidance to help address the challenges in identifying and assessing risks while emphasizing the scalability of the standard with a focus on LCEs – an Implementation Tool for Auditors has tips for implementing revised CAS 315, Identifying and Assessing the Risks of Material Misstatement.
In 2021, the AASB issued a Discussion Paper, “Exploring Standard-setting Options for Audits of Less Complex Entities.” We are seeking responses from interested and affected parties to options that might be explored in Canada to address the challenge of applying the CASs to LCE audits, including whether to pursue a separate standard for LCE audits in Canada. With this Discussion Paper, we are also seeking input on the IAASB’s ED-ISA for LCE.
Canadian practitioners are encouraged to follow the progress of this initiative and provide feedback as necessary.